F Reorganization Rules Highlight Importance of Form

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Nov. 5 — The government is emphasizing form over substance in rules allowing corporate reorganizations where only name or jurisdiction changes are made, officials said.

“The final rules really focus on form and there is a compromise there,” Krishna Vallabhaneni, deputy tax legislative counsel at the Treasury Department, said Nov. 5 at a District of Columbia Bar event.

The so-called F reorganization under tax code Section 368(a)(1)(F) allows corporations to transfer assets from one entity to another if all the assets, shareholders and tax attributes stay the same. The Internal Revenue Service issued final regulations (T.D. 9739) in September that outline six requirements for the transaction to be tax free (182 DTR G-6, 9/21/15).

“As with other types of reorganizations, if you choose your form carefully, you can get the results you're looking for,” Maury Passman, Branch 4 chief of the Office of Associate Chief Counsel (Corporate), said. “That kind of certainty helps facilitate tax administration from the government's perspective and helps taxpayers.”

Creating Certainty

The rules largely adopt the 1990 proposed rules, with some changes reflecting overlapping types of transactions. The rules also centralize guidance that had been spread out among various revenue rulings.

“The idea was to try to create certainty,” Vallabhaneni said. “Some cases the certainty says you just don't have an F anywhere.”

The goal of this project was to address F reorganizations, not necessarily other reorganization forms, Passman said. Answering additional questions would have delayed the project even longer, he said.

The final rules also stipulate that the F reorganization occurs in a “bubble,” so that events occurring before or after the transaction aren't taken into account.

‘Seinfeld' State of Mind

Because of the limited changes that happen during an F reorganization, some people at the IRS have dubbed these the “Seinfeld” rules after NBC's 1990s sitcom.

“I view F reorganizations in a sense as a kind of nothing,” Passman said. The transaction will be “taxed as if you hadn't swapped your shell. And swapping your shell won't cause tax implications either.”

To contact the reporter on this story: Laura Davison in Washington at ldavison@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com